insight magazine

Tax Decoded | Winter 2017

Illinois Independent Tax Tribunal: An Interim Report

Insights into the agency’s operations and transparency.
Keith Staats, JD Executive Director, Illinois Chamber Tax Institute

In early 2014, the Illinois Independent Tax Tribunal was established as an independent state agency to resolve disputes between taxpayers and the Illinois Department of Revenue (IDOR). The Tribunal was created with the somewhat grudging acquiescence of IDOR’s administration. Before the Tribunal was established, protests of tax assessments were heard by IDOR administrative law judges who drafted decisions for final approval by IDOR’s director of revenue. The director of revenue had the authority to modify and reverse the judges’ decisions. It’s easy to see how this structure could be perceived to lack objectivity — hence the establishment of the Tribunal.

Today, the Tribunal’s jurisdiction extends to taxpayer protests of notices of deficiency (income tax), notices of tax liability (sales and excise taxes), denials of refund claims, and protests of penalties (including personal liability penalties). However, the Tribunal’s jurisdiction is limited to matters in which more than $15,000 is at issue. Another caveat is that the Illinois Supreme Court ruled many years ago that defending taxpayers in administrative matters constitutes the practice of law, meaning only licensed attorneys may file protests and represent taxpayers before the Tribunal.

In addition to cases below the $15,000 threshold, certain matters weren’t transferred to the Tribunal and continue to be heard by IDOR’s administrative hearings division. The most notable of these are protests of denials of charitable sales tax exemptions and charitable property tax exemptions.

Now that the Tribunal has been hearing cases for almost four years, I thought it was time to review its work and gain some insights into the caseload and outcomes. To provide transparency, Tribunal taxpayer protests and the resulting docket filings are publicly available for review (unlike those of IDOR’s administrative hearings division).

In 2014, the first year of the Tribunal’s operation, 256 cases were filed. In 2015, 270 cases were filed. In 2016, 238 cases were filed. And through late October 2017, 147 cases were filed. The number of cases filed with the Tribunal each year appears steady, and I’m hesitant to surmise that the lower number in 2017 is any indication that taxpayers are growing less likely to file protests with the Tribunal. It’s more likely that the initial influx was due to taxpayers transferring cases to the Tribunal because they received no substantive action in IDOR’s administrative hearings division. In the Tribunal’s earlier years, IDOR also issued several assessments related to a focused audit review of gas stations and other cash businesses. Finally, IDOR has reported its audit division has lost a significant number of senior staff to retirement, which could be slowing down audits and the issuance of audit assessments.

By law, the Tribunal must publish its final decisions. Unsurprisingly, the Tribunal didn’t issue any decisions in its first year of operations. Final written decisions are only issued at the conclusion of contested cases, and in my experience, it generally takes well over a year to reach a final ruling. The Tribunal issued six decisions in 2015, two decisions in 2016, and six decisions so far in 2017.

These numbers may lead you to believe that the Tribunal isn’t deciding much, but my review of cases from 2014 shows that all but around 16 of the cases have been resolved. Of the 2015 and 2016 cases, 75 and 108 cases remain open. Many of the cases were even dismissed at IDOR’s request. IDOR withdrew its refund claim denial in 16 instances in 2014, three instances in 2015, and two instances in 2016. IDOR withdrew its assessment in eight cases in 2014, 14 cases in 2015, and 12 cases in 2016. IDOR withdrew the personal liability penalty assessment notice that triggered the protest in 18 cases in 2014, 37 cases in 2015, and 22 cases in 2016. Taxpayers withdrew 28 protests in 2014, 19 in 2015, and 13 in 2016. The Tribunal further dismissed protests for various reasons related to a lack of jurisdiction or defective filing. In 2014, 17 cases were dismissed for these reasons, and eight in both years 2015 and 2016. A number of cases were stayed each year pending resolution of a related matter in the courts — five in 2014, 10 in 2015 and 11 in 2016.

What’s also interesting is that 133 of the 256 cases filed in 2014 were disposed of by settlement, as well as 98 in 2015 and 63 in 2016 — it appears that IDOR is quite amenable to settling cases before the Tribunal. What we don’t know are the terms of the settlements. My guess, however, is that IDOR is inclined to settle cases rather than risk adverse decisions. This would account for the fact that the reported Tribunal decisions appear to be skewed favorably towards IDOR. Speaking from personal experience as a former general counsel of IDOR, it was my general practice to carefully evaluate the risk of establishing adverse judicial precedent when reviewing proposed settlements. I suspect the current IDOR administration may be doing the same.

At this point, it’s still too soon to evaluate the ultimate success of the Tribunal. I do think that the number of cases resolved through settlement makes a case to support a more robust settlement process within IDOR. It’s also worth noting that a more robust settlement process would allow taxpayers to more fully utilize their CPAs in the process.

With IDOR’s support, the Illinois Chamber of Commerce has led efforts to modify the law to move protests of sales and property tax exemption determinations to the Tribunal and remove the $15,000 threshold. They will continue these efforts next year.

For now, I recommend only incremental changes to the Tax Tribunal. From my review of the docket, it appears that cases could be resolved quicker if additional resources are provided to IDOR and the Tribunal. It appears that additional IDOR litigators may be necessary given the pace of the filing of IDOR answers to petitions. I think we need to continue to observe how it works over the next few years before suggesting any radical changes.

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